Dave spends an hour on Sunday evenings with a group. The group can meet at an ice arena for hockey at $10 per person per hour before tax, or at a pub for drinking at $5 per person per hour before tax. Currently, only drinks are subject to the 10% PST while ice hockey arena rental is not taxable under PST. Dave spends $200 per year on Sunday evening activities. Under this tax schedule, Dave consumes 20 hours on drinks and 9 hours on ice hockey arena rental per year.

For the following questions, please put all the lines and numbers in ONE diagram. 1.1 Draw the budget constraint before the PST tax and after the PST tax on drinks (ignoring GST). Mark the current consumptions of Dave on the diagram. How much tax revenue will the government collect from Dave? (20 points) 1.2 If the government wants to put a PST tax on both hockey rentals and drinks. What is the new PST tax rate of a "revenue neutral" extension of PST to ice rentals, if Dave now consumes 7 hours on ice arena and 24 hours on drinks per year under the new, extended PST? Note: revenue neutral means the government will be able to collect the same amount of total tax revenue under the two alternative tax regimes in 1.1 and 1.2. 1.3 On your figure, add the new after-tax budget constraint and mark the new, total tax revenue collected from Dave, measured as hours of ice arena rentals, on the diagram.